Exhibit
10.2


 


UPSIDE
SHARING PAYMENT AGREEMENT


 


This Upside Sharing
Payment Agreement (this “Agreement”) is made this 16th day of
June 2004, but effective as of March 1, 2004, by and between TEXAS
INDEPENDENT EXPLORATION LIMITED, a Texas limited partnership and successor by
conversion of Texas Independent Exploration, Inc., GULFCOAST ACQUISITIONS
LIMITED, a Texas limited partnership and successor by conversion of Gulfcoast
Acquisition Corporation, FREDERICK W. ZIMMERMAN d/b/a ISLAND RESOURCES and
FREDERICK W. ZIMMERMAN, individually, hereinafter collectively referred to as “Seller”
or “Sellers”) and WHITTIER ENERGY COMPANY, a Nevada corporation (hereinafter
referred to as “Buyer”).


 


WITNESSETH:


 


WHEREAS, on even date
herewith, Seller and Buyer consummated the purchase and sale of certain oil and
gas assets pursuant to that certain Offer to Sell Agreement dated effective as
of March 1, 2004 (the “Purchase Agreement”); and


 


WHEREAS,
as additional consideration for the transactions contemplated in the Purchase Agreement,
Buyer agrees to pay to Seller the herein below provided Upside Sharing Payments
(as defined below) accruing to Buyer from the annual sale of production from
the Properties and received by Buyer;


 


NOW, THEREFORE, based
upon the mutual covenants and considerations contained herein, Seller and Buyer
agree as follows:


 


1.                                       Defined Terms.


 


(a)                                  All
capitalized terms not otherwise defined in this Agreement shall have the
meaning contained in the Purchase Agreement.


 


(b)                                 “Agreement”
shall mean this Upside Sharing Payment Agreement.


 


(c)                                  “Buyer’s
Net Revenue Interest” shall mean Buyer’s share of production in the
Properties acquired from Seller pursuant to the Purchase Agreement.


 


(d)                                 “Buyer’s
Upside Sharing Agreement Volumes” shall mean the difference between the
volumes of gas produced, saved and sold attributable to Buyer’s Net Revenue
Interest in production less Scott & Hopper #3 Well Excess Production
Volumes.


 


(e)                                  “Final
Upside Sharing Payment” shall mean the Upside Sharing Payment made to
Seller pursuant to this Agreement for the last “Sharing Year”, if any such
payment is due.


 

















 


(f)                                    “MCF”
shall mean thousand cubic feet. “Target Price” is on an MCF basis for
each “Sharing Year” during the term hereof as set forth on Exhibit A
attached hereto and made a part hereof.


 


(g)                                 “Net
Back Price On A Wellhead MCF Basis” is defined as the quotient resulting
from dividing the (1) difference between (i) the sum of actual gas sales
proceeds received by Buyer from all gas purchasers plus plant product proceeds
received by Buyer from all gas plants, attributable to Buyer’s Upside Sharing
Agreement Volumes, less (ii) the sum of any and all (a) Third Party Costs
allocable to Buyer’s Upside Sharing Agreement Volumes plus (b) fuel and
shrinkage losses allocable to Buyer’s Upside Sharing Agreement Volumes that
have not already been deducted from the calculation of such proceeds, plus (c)
hedge settlements from hedges entered into subsequent to the Closing that are
specific to Buyer’s Upside Sharing Agreement Volumes, by (2) the MCF of gas
comprising Buyer’s Upside Sharing Agreement Volumes..


 


(h)                                 “Purchase
Agreement” shall have the meaning given such term above.


 


(i)                                     “Scott
& Hopper #3 Well Excess Production Volumes” shall have the meaning
given such term in the Purchase Agreement.


 


(j)                                     “Sharing
Year” shall mean each of the one year periods identified on Exhibit A
attached hereto and made a part hereof.


 


(k)                                  “Third
Party Costs” shall mean expenses paid by Buyer for actual processing or
transportation charges that occur downstream of the sales meter located on the
leased premises on which the producing well is located.


 


(l)                                     “Upside
Sharing Payments” shall have the meaning given such term in Section 2
below.


 


Other terms defined
elsewhere in this Agreement have the meanings given such terms as set forth in
such other provisions of this Agreement.


 


2.                                       Upside Sharing Payments.  As additional consideration for the
transactions contemplated in the Purchase Agreement, for each Sharing Year
during the term hereof in which the actual weighted average Net Back Price On A
Wellhead MCF Basis received for that Sharing Year exceeds the Target Price for
that Sharing Year, Buyer shall pay to Seller a payment determined by first,
multiplying 50% of the amount of Buyer’s Upside Sharing Agreement Volumes for
that Sharing Year times the difference between the actual weighted average Net
Back Price On A Wellhead MCF Basis for that Sharing Year less the Target Price
for that Sharing Year, and second, subtracting from such product severance and
ad valorem taxes that are allocable to such product.  The payments made pursuant to this Paragraph 2 shall be referred
to hereinafter as “Upside Sharing Payments”.


 


2

















 


3.                                       Time and Method of Payment.  Buyer shall pay to Seller the Upside
Sharing Payments on or before 120 days following the end of the Sharing Year in
which any such payment accrued.  All
payments hereunder shall be made by wire transfer of immediately available
funds to an account designated by Seller, which designation shall be made not
later than two (2) Business Days prior to the date such payment is due.


 


4.                                       Reports.  During the term hereof, Buyer shall provide
Seller with monthly and annual production, hedging and revenue reports and
other relevant information to allow Seller to determine the amount of Seller’s
Upside Sharing Payments to be received from Buyer.


 


5.                                       Term.  This Agreement shall terminate on the date of
payment by Buyer to Seller of the Final Upside Sharing Payment or, in the event
no such payment is due, on June 30, 2008, whichever is the later.  Upon the expiration of this Agreement,
Seller shall furnish Buyer an executed recordable release of this Agreement and
Buyer’s obligations hereunder in the form attached hereto as Exhibit C.


 


6.                                       Subsequent Transfers.  The Upside Sharing Payments
required hereunder shall constitute covenants running with the land.  Any transfer by Buyer of the Properties, or
any Property, shall be made expressly subject to this Agreement, and the transferee
of Buyer shall expressly agree to be bound by this Agreement and to assume all
of Buyer’s obligations hereunder with respect to the Property or Properties
purchased.  Notwithstanding the
foregoing, Buyer shall not be relieved of any of its obligations under this
Agreement, including, but not limited to, computing and making the Upside
Sharing Payments, without the express prior written agreement by Seller.


 


7.                                       Access to Records.  During the term of this Agreement, Buyer
shall give Seller reasonable access to all relevant documents, data and other
information necessary to audit Buyer’s obligations hereunder, including the
calculation of the Upside Sharing Payments.


 


8.                                       Recording.  Buyer shall record a memorandum of this
Agreement in the form attached hereto as Exhibit B (the “Memorandum”) in
each county or parish where the Properties are located.  Within forty-five (45) days following the
execution hereof, Buyer shall furnish Seller with a statement setting forth the
recording information for each county or parish wherein such Memorandum was
recorded.


 


9.                                       Governing Law.  This Agreement is governed under the laws of
the State of Texas excluding any conflicts of law rules or principal that might
apply the law of another jurisdiction. All disputes shall be submitted to the
jurisdiction of the courts in the State of Texas and venue shall be in Harris
County, Texas.


 


10.                                 Notices.  All notices, requests, demands and other
communications shall be provided in accordance with the terms of the Purchase
Agreement.


 


11.                                 Other Agreements.  If there is a conflict between the terms of
the Purchase Agreement and terms of this Agreement, the terms of the Purchase
Agreement shall


 


3

















 


control the rights and
obligations of the Parties, but only to the extent necessary to resolve the
conflict.


 


12.                                 Payment to TIE.  Each of the Sellers  (i)
hereby instructs and authorizes Buyer to make all payments due Sellers under
this Agreement, including, without limitation, payments of their portion of the
Upside Sharing Payments, to Texas Independent Exploration Limited (“TIE”) and
(ii) agrees to hold Buyer harmless and indemnify Buyer, to the extent and
amount of such payments, from and against any claim made by Sellers concerning
such payments made by Buyer to TIE.


 


IN WITNESS WHEREOF, the
undersigned parties have executed this Agreement on the day and year first set
forth above, but effective as of March 1, 2004.


 


	
   

  	
  TEXAS INDEPENDENT EXPLORATION LIMITED

  
	
   

  	
  By: Independent
  Operating, L.L.C., a Texas limited

  liability company, its general partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Frederick W.
  Zimmerman

  	
   

  
	
   

  	
   

  	
  Frederick
  W. Zimmerman, Manager

  
	
   

  	
   

  	
   

  
	
   

  	
  GULFCOAST ACQUISITIONS LIMITED

  
	
   

  	
  By: Blanco Minerals,
  L.L.C., a Texas limited

  liability company, its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Frederick W.
  Zimmerman

  	
   

  
	
   

  	
   

  	
  Frederick
  W. Zimmerman, Manager

  
	
   

  	
   

  	
   

  
	
   

  	
  Frederick W. Zimmerman

  d/b/a ISLAND RESOURCES

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Frederick W.
  Zimmerman

  	
   

  
	
   

  	
   

  	
  Frederick
  W. Zimmerman

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Frederick W.
  Zimmerman

  	
   

  
	
   

  	
   

  	
  Frederick
  W. Zimmerman

  
	
   

  	
   

  	
   

  
	
   

  	
  WHITTIER
  ENERGY COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Daniel H. Silverman

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   Daniel H. Silverman

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  Chief Operating Officer

  
					



 


4

















 


EXHIBIT
A


 


Attached
to and made a part of that certain Upside Sharing Payment Agreement

dated effective as of March 1, 2004 by and between Texas Independent
Exploration

Limited, et al., collectively as Seller

and Whittier Energy Corporation, as Buyer.


 


 


TARGET PRICE AND SHARING YEAR
SCHEDULE


 


 




	
  Sharing Year

  	
   

  	
  TARGET
  PRICE

  PER MCF

  	
   

  
	
  07/01/2004
  – 06/3/2005

  	
   

  	
  $

  	
  6.25

  	
   

  
	
  07/01/2005
  - 06/30/2006

  	
   

  	
  $

  	
  6.50

  	
   

  
	
  07/01/2006
  - 06/30/2007

  	
   

  	
  $

  	
  6.75

  	
   

  
	
  07/01/2007
  - 06/30/2008

  	
   

  	
  $

  	
  7.00

  	
   

  






 

















 


EXHIBIT B


 


MEMORANDUM OF UPSIDE SHARING PAYMENT
AGREEMENT


 


	
  STATE
  OF TEXAS

  	
  §

  
	
   

  	
  §

  
	
  COUNTIES OF BROOKS,
  LIVE OAK & STARR

  	
  §

  
	
   

  	
   

  
	
   

  	
   

  
	
  KNOW ALL MEN BY THESE
  PRESENTS THAT:

  	
   

  



 


TEXAS INDEPENDENT EXPLORATION LIMITED, a Texas limited partnership and
successor by conversion of Texas Independent Exploration, Inc., GULFCOAST
ACQUISITIONS LIMITED, a Texas limited partnership and successor by conversion
of Gulfcoast Acquisition Corporation, FREDERICK W. ZIMMERMAN d/b/a ISLAND
RESOURCES and FREDERICK W. ZIMMERMAN, individually (hereinafter collectively
referred to as “Seller”) and WHITTIER ENERGY COMPANY, a Nevada
corporation (hereinafter referred to as “Buyer”) executed an Upside
Sharing Payment Agreement dated effective March 1, 2004.  Such Upside Sharing Payment Agreement will
terminate on the date of payment of the Final Upside Sharing Payment, which, if
such payment is due, must be paid on or before 120 days following June 30,
2008; provided, however, in the event no such payment is due, the Upside
Sharing Agreement will terminate on June 30, 2008.


 


This Memorandum of Upside Sharing Payment Agreement is placed of record
to serve as notice of the execution and existence of said Upside Sharing
Payment Agreement, and is in no way to supercede same or to abrogate, change,
alter, or modify any of the terms and conditions or any of the rights and
obligations of any of the parties, all of which are set forth in detail in said
Upside Sharing Payment Agreement, which is made a part hereof by reference for
all purposes to the same effect as though written in extenso herein.


 


THUS DONE AND
SIGNED  as
of this the       day of
          , 2004.


 


 


	
   

  	
  TEXAS INDEPENDENT EXPLORATION LIMITED

  
	
   

  	
  By: Independent
  Operating, L.L.C., a Texas limited

  liability company, its general partner

  
	
   

  	
   

  
	
   

  	
  By: 

  	
   

  	
   

  
	
   

  	
   

  	
  Frederick W. Zimmerman, Manager

  



 

















 


	
   

  	
  GULFCOAST ACQUISITIONS LIMITED

  
	
   

  	
  By: Blanco Minerals,
  L.L.C., a Texas limited

  liability company, its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Frederick W. Zimmerman, Manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Frederick W. Zimmerman

  
	
   

  	
  d/b/a ISLAND RESOURCES

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Frederick W. Zimmerman

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Frederick W. Zimmerman

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  WHITTIER
  ENERGY COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						



 


 


ACKNOWLEDGMENTS


 


	
  STATE
  OF TEXAS

  	
  §

  
	
   

  	
  §

  
	
  COUNTY
  OF HARRIS

  	
  §

  



 


This instrument was
acknowledged before me on this     day of
         , 2004, by Frederick W.
Zimmerman, Manager of Independent Operating, L.L.C., the general partner of
Texas Independent Exploration Limited, on behalf of said Texas limited
partnership.


 


 


	
   

  	
   

  	
   

  
	
   

  	
  Notary Public, State of Texas

  



 


2

















 


	
  STATE
  OF TEXAS

  	
  §

  
	
   

  	
  §

  
	
  COUNTY
  OF HARRIS

  	
  §

  



 


This instrument was
acknowledged before me on this     day of
         , 2004, by Frederick W.
Zimmerman, Manager of Blanco Minerals, L.L.C., the general partner of GulfCoast
Acquisitions Limited, on behalf of said Texas limited partnership.


 


 


	
   

  	
   

  	
   

  
	
   

  	
  Notary Public, State of Texas

  



 


 


	
  STATE
  OF TEXAS

  	
  §

  
	
   

  	
  §

  
	
  COUNTY
  OF HARRIS

  	
  §

  



 


This instrument was
acknowledged before me on this     day of
         , 2004, by Frederick
Zimmerman d/b/a Island Resources, a sole proprietorship, individually and on
behalf of said sole proprietorship.


 


 


	
   

  	
   

  	
   

  
	
   

  	
  Notary Public, State of Texas

  



 


 


	
  STATE
  OF TEXAS

  	
  §

  
	
   

  	
  §

  
	
  COUNTY
  OF HARRIS

  	
  §

  



 


This instrument was
acknowledged before me on this     day of
         , 2004, by Frederick W. Zimmerman.


 


 


	
   

  	
   

  	
   

  
	
   

  	
  Notary Public, State of Texas

  



 


 


	
  STATE
  OF TEXAS

  	
  §

  
	
   

  	
  §

  
	
  COUNTY
  OF HARRIS

  	
  §

  



 


 


This instrument was
acknowledged before me on this     day of
         , 2004, by
                            ,
                               
of Whittier Energy Company, on behalf of said Nevada corporation.


 


 


	
   

  	
   

  	
   

  
	
   

  	
  Notary Public, State of Texas

  



 


3

















 


EXHIBIT
C


 


Attached
to and made a part of that certain Upside Sharing Payment Agreement

dated effective as of March 1, 2004 by and between Texas Independent
Exploration

Limited, et al., collectively as Seller

and Whittier Energy Company, as Buyer.


 


 


[FORM OF RELEASE – TO BE DRAFTED]